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Bitcoin’s Big Institutional Week: JPMorgan Brings Crypto to All Wealth Management Clients & More

A stream of institutional news revives the previously stagnant narrative.

Listen on:

On this episode

A stream of institutional news revives the previously stagnant narrative.

This episode is sponsored by NYDIG.

This week, institutional involvement was revived after the past few months’ inactivity. NLW covers new evidence for institutional interest, including:

  • A billionaire you can’t ignore
  • JPMorgan offering crypto exposure
  • Galaxy Digital’s big bank backers

Elon Musk’s revelation that SpaceX, the space exploration company that he founded, held bitcoin was joined by billionaire Thomas Peterffy’s admission that he holds some crypto, even hinting he sees “a small chance this will be a dominant currency.” On the wealth management end, JPMorgan has opened crypto exposure to all of its clients, a typically conservative set who tend to be passive in their investments. Lastly, London-based digital trading asset venue Galaxy Digital’s big bank backers continues to grow. The latest addition was BNY Mellon.

All this together points to the fact that institutions, no matter how reluctantly, see crypto as an inevitable investment that can’t be ignored.

The Breakdown is written, produced by and features NLW, with editing by Adam B. Levine and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Tiffany Hagler-Geard/Bloomberg/Getty Images, modified by CoinDesk.

Transcript

What's going on guys? It is Friday, July 23 and today we are talking about some very interesting institutional Bitcoin and crypto news. It has been a non stop barrage of FUD for what feels like months, China FUD, Tether FUD, regulatory FUD, so much FUD. And, I have some bad news. Tomorrow's "Weekly Recap" has even more FUD around regulatory machinations. I figured that's better for a Saturday when your weekend's in full swing, and you have more time to process. But, today. Well, today we have something fun. 

As you know, there have been some meaningful questions about institutional involvement in the space. This was the narrative that drove so much of the action from Q2 last year to Q2 this year. Now, interestingly, the price run-up was not just spot demand from institutions buying, it was a bit of that, plus a lot of traders levering up and driving the price up in anticipation of those institutions coming in. Basically, traders aren't just betting on fundamentals, they're betting on narratives that they see in the market, and particularly narratives that seemed like other people are also betting on. For a while, that trade was looking fine, especially Q1 of this year, was just announcement after announcement after announcement of institutions coming in. The culmination perhaps was Tesla's $1.5 billion treasury bet. In point of fact, though, most of these advancements were less about corporate treasuries and more about trading, in retrospect, a relatively small handful of corporate treasuries, at least that we know about, finalize their allocations to Bitcoin. What there was a lot of, however, was recognition among big banks and traditional firms that they had to give clients access to crypto buying, selling and custody. 

Suffice it to say, the enthusiasm around this type of news, not to mention the traders trading that news, has dampened pretty significantly in the past few months. That whole big positive cycle was replaced with the endless negative news that I mentioned at the top of the show. Now there have been dribs and drabs of interesting institutional announcements over the past few weeks, but I think it's been fair to ask just how strong that narrative was. This week, however, put some pretty damn good evidence in our hands that institutions not only remain engaged, but that they're quietly making big moves behind the scenes. 

So, what did we learn? Well, first, there are billionaire allocations. We discussed it yesterday, but it is clearly significant that SpaceX is also holding bitcoin on its balance sheet, and the company has not divested itself of its bitcoin during the latest FUD phase. It's also significant that Elon vociferously made it clear that he has not sold his bitcoin. It's also significant that Elon revealed that he also held eth. And finally, it's significant that his crypto holdings are his biggest holdings outside of his Tesla and SpaceX stock. But, Elon wasn't the only Billy Boy dropping hints on their coin stack. 

Let's talk about Thomas Peterffy. Peterffy started Interactive Brokers back in 1978. And all of these digital brokerages now owe something to IB, which was one of the earliest innovators in computer-assisted trading. The company remains absolutely massive, they call themselves the largest electronic trading platform in the U.S. by the number of daily average revenue trades. Peterffy. is now worth north of $20 billion,  $21 billion in fact, which is, you know, 21 bitcoin, you get it. That said, Peterffy's history with bitcoin and crypto is one of "fine for you, but maybe don't make it part of our system." In 2017, when CME was about to launch bitcoin futures, he told CNBC that he had no problem with people trading bitcoin and crypto but that quote, "linking bitcoin and other cryptocurrencies by federal regulations to the real economy was problematic."

Fast forward to today, IB is preparing a crypto offering. Peterffy has said that several of their clients expressed interest: "I completely understand it." But more than that, he said: "Even I, myself have put a little bit of money into crypto because even though chances are, I think that this is not going to be a viable market, I think that there's a small chance that this will be a dominant currency, so you have to play the odds." Peterffy didn't give any more details about which cryptos or what his allocation was, but still, chalk up one more of the world's best investors on the crypto team. 

I also think as much as we like strong, clear, full-throated support of bitcoin and everything that it can be, there's also something powerful about the "I can't ignore the possibility that this thing is real, whatever my priors are," it almost hits a totally different segment of skepticism in the market, people you're never going to get to be zealots, but people who feel like they have to be there, at least on some basic level. Okay, so we're starting this week's institutional news with some more billionaire advocate reveals, right, not bad, not bad. Now, let's talk about family offices and wealth management clients. 

Wealth Management is the practice inside big investment firms where people who have millions of dollars in assets, hand them to investment managers and say, "make us more money or at least don't lose us this money." Clients often have a lot of control over what things are allocated to but in general, you're basically paying someone to make more money for you. This is passive for you, the wealth holder, rather than actively making your own individual bets. Family offices are a slightly different version of this and are usually for folks with even higher net worths. So, a family office is more like when you have $50 million plus and want to hire a small team of professionals to manage it. Family offices are a super interesting part of the institutional investor landscape in that, depending on whose assets are in play, they can be either much more conservative or much less conservative and more dynamic. David Nage, who is now over at Arca, used to run family office practices and spent a ton of time getting family offices informed on crypto. 

Well, Goldman Sachs did a survey of more than 150 family offices. Of those, 15% of respondents are already invested in crypto, another 45% would be interested in the space as a hedge around quote "higher inflation prolonged low rates" and other macroeconomic developments following a year of unprecedented global monetary and fiscal stimulus. These firms are also on average, a lot bigger than that $50 million little guy I was mentioning. Of the firms that participated in the survey, 22% had assets under management of $5 billion or more and 45% saw $1 billion to $4.9 billion. One other really interesting nugget from the survey comes from Meena Lakdawala-Flynn, who's one of the leads at Private Wealth Management for Goldman and who said that there are many who think that quote, "This technology is going to be as impactful as the Internet has been from an efficiency and productivity perspective."

Okay, so now we've got billionaires revealing their holdings. We've got these family office funds interested, but that wasn't the biggest bitcoin institutional wealth management news. That came from JPMorgan. This week, JPM made crypto exposure available to all of their wealth management clients, and that's a big step. Now, if you're confused why it's a big step, that's reasonable. And what I mean is that, haven't these wealthy folks had every ability to just go buy bitcoin on their own for like, as long as retail has? Yes, yes, they have. However, JPM wealth management clients are going to tend to represent a conservative set who are more passive in their investments. So, this definitely represents the pie of total crypto buyers expanding. 

On top of just this institutional investor expansion, JPMorgan is also reportedly giving their retail client side wider access to indirect crypto exposure through the Grayscale Trust as well as the Osprey Bitcoin Trust. So, these clients still can invest in crypto directly through their JPM or Chase accounts, but they can get these proxies. Of course, what makes all these moves extra notable is the degree to which JPM CEO Jamie Dimon remains vocally skeptical of bitcoin. So what you have here, then, is a bottom-up client demand trumping the biases of a top-down hierarchy, which I think is pretty rad. 

Yet still ,not done with institutional news for the week. Fidelity Digital Assets released its 2021 Institutional Investors Digital Asset Study, the banner headline is that seven of ten institutional investors surveyed expect to invest in digital assets in the future, more than 90% of those interested intended to have an allocation in the next five years. What's more, they found that 52% of institutions surveyed across Asia, Europe and the U.S. already have digital asset exposure. Asia was the highest with 71%, followed by Europe with 56%, followed by the U.S. with 33%. Those numbers in Europe and the U.S. are up from 45% and 27% last year, respectively. So then, what's holding the stragglers back? Well, the survey says it's price volatility and difficulty valuing assets. Interestingly, concerns around complexity and market infrastructure are on the decline. For those wondering about the methodology of the survey, Coalition Greenwich produced it on behalf of Fidelity Digital between December 2 of last year and April 2 of this year, it included 1,100 institutional investors in the U.S., Europe and Asia that included high net-worth investors, family offices, digital and traditional hedge funds, financial advisors, and endowments and foundations. 

Alright, one last institutional story. And before we discuss this, let's talk Hulu. The late 2000s had seen the beginning of the rise of streaming, right? Netflix was a force and it was clear that television was going to change. In that context, a number of the big media companies said "hey, we should probably compete." Newscorp NBC, Disney, all got together to found Hulu. It would aggregate shows from their television networks and provide a hedge to traditional cable subscription revenue. The subsequent history of Hulu ownership is a complex back and forth but it was, has, and remains an asset of traditional media companies in the internet era. 

Fast forward to this week. Pure Digital is a New London-based digital asset trading venue that will start operations soon. And, it's not an independent startup per se in the sense of start a thing, go raise some venture capital, grow it, invite some more capital in etc. Instead, it's being backed from the get-go by a consortium of banks. In April, State Street announced that they would be lending their trading technology to the project and State Street is, of course, one of the world's biggest asset managers. This week, BNY Mellon announced support for the project as well. So, there are now six major banks in the consortium backing Pure Digital, by the way founder Campbell Adams used a similar strategy to build a foreign exchange platform in 2014. 

My feeling is that the exchange space is still wide open, there's going to be lots of room to develop lots of services for different types of clients. And that Hulu proves that sometimes, in spite of themselves, legacy-led initiatives can actually survive the tide of chaotic disruptors. What's notable to me is that these big banks feel obligated to make a play in this space. So, as you can see, quite a bit of news happening on the institutional side, as I mentioned, right at the top, some folks who felt like maybe that narrative was dying, but others have had conviction that said this work was continuing unabated, just with less promotion and more behind the scenes and from where I'm sitting, that certainly seems to be true. Anyways, guys, I hope you're headed into a great weekend. I appreciate you listening, until tomorrow, be safe and take care of each other. Peace!

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